Suppose market is in equilibrium and demand increases. It will result in excess demand. Excess demand causes competition among buyers resulting in rise in price.
The net effect of rise in prices reduces demand and increases supply. As a result, excess demand is reduced. These changes continue till demand and supply are equal at new price.
New price is higher than old price.
or
(i) OP1 is the equilibrium price and OQ1 is equilibrium quantity. When demand increases the demand curve shift to the right. D2 is new demand curve.
(ii) This creates an excess demand E1A1 at the existing price OP1.
(iii) The excess demand causes competition among buyers resulting in rise in price.
(iv) Rise in price leads to fall in demand and rise in supply as indicated by the arrows.
These changes continue till the market reaches new equilibrium at E2 with a higher price OP2.